Money Makeover: "Can we afford to have a baby?"

Breanne and Larry Stone think they're ready for a child, but they're not sure they can provide for one. Money expert Carmen Wong Ulrich and relationship pro Tina B. Tessina get these newlyweds on the road to successful — and solvent — parenthood.

Like many young couples, Breanne and Larry Stone can't wait to build a dream nursery filled with cute little onesies and a sparkling new crib. But as much as they're looking forward to cuddling a newborn, this Terre Haute, IN, couple wants to make sure their bank accounts can stand up to the $15,000 a year on average that it costs to raise a child, according to a government study. "Last summer, I got a case of baby fever when a girl I work with got pregnant," says Breanne, 25, a payroll clerk who earns $26,000 a year. "But since we have outstanding student loans, credit card debt, and house and car payments, I really would like to get our finances on track before we start trying for a baby."

"Breanne jokes that we can't afford kids because we can't even afford ourselves," says Larry, 26, an assistant department manager at a hardware store who earns $35,000 a year. Two years ago, the newlyweds bought a 90-year-old house that quickly turned into a money pit. "I'm sure we've spent at least $5,000 on home repairs," says Breanne. The house still needs a new roof and windows, and it's not the only source of the couple's debt. "Every time we get a card or a loan paid off, we say, 'We're not doing so bad,' and end up buying something, like a computer or a new car," says Breanne.

Another factor at hand: Larry would like to get a college degree and boost his earning power, but because of scheduling constraints with his current job and their cash flow, Larry's not sure the timing is right for this dream — let alone their shared goal of building a family.

"There's never really a perfect time when a couple feels 100 percent financially ready to have a baby," says Carmen Wong Ulrich, author of Generation Debt — and there's no magic number on your bank balance that means you're ready. "But you should feel in control of your money, be clear on your financial goals, and have certain systems in place — like a monthly budget that you stick to — to make sure you remain on track financially," says Ulrich. Just as important as financial stability, however, is a couple's emotional readiness to parent, says Tina B. Tessina, Ph.D., REDBOOK Love Network expert and author of the upcoming Money, Sex, and Kids. "I think it's smart that Breanne and Larry want to think it through," she says. "They just need to have a clear plan."

Breanne and Larry each brought debt to the relationship: She had $15,000 in student loans (that's now down to $13,000), and he had $2,000 in credit card debt and a $20,000 car loan (they ultimately sold that car in order to purchase their house). Together, they have four credit cards with a total debt of more than $6,000; they currently put about $400 a month toward paying them off. "I think we would be a lot less stressed if we paid off our debt," says Larry. "Things are tight already, and if we had a kid, we would have to watch every dime we spent." Adds Breanne: "If we take the plunge and start a family now, I'm afraid we'll be pinching pennies for years to come."

To reduce their debt as quickly as possible, Ulrich suggests that Breanne and Larry make it a priority to pay down the credit card with the highest interest rate, while paying only the minimum on the other cards. The couple should also transfer the balances on the two retail cards they have — both of which have interest rates of over 20 percent! — to their credit card with the lowest interest rate. "This will put all the debt at close to 11 percent interest, which will save Breanne and Larry at least $20 a month in interest payments," says Ulrich. Once all the balances are transferred, they should cancel those retail cards. Finally, Breanne and Larry should make a pledge to each other to stop using their credit cards until they're paid off. If they need to make a purchase, they should pay for it in cash.

FINANCIAL ROADBLOCK: "We live from paycheck to paycheck — and we can't seem to save a dime."

MONEY-SMART SOLUTION: Scrimp to start an emergency-cash cushion.

The Stones' goal: to have three to six months of living expenses set aside for emergencies and a future baby fund. But it's hard for the couple to curb their spending. "There's hidden money everywhere," says Ulrich. "You just have to look for it." Breanne and Larry should tally all their expenses and receipts over the course of one month, Ulrich says. This should include everything from a 99-cent coffee to a tank of gas. By looking at their spending in black-and-white, they'll see places where they can make cuts and immediately set aside that found money in a savings account. "Say they're spending $35 a month on ATM fees," says Ulrich. "If they just hit the ATM less often and resolved to stick to their bank branch ATM — or even shop for a new bank that has lower fees and is more convenient for them to get to — they'd be that much better off each month," she says.

And because Breanne and Larry spend more on their cars each month ($655 — and that doesn't include gas) than on their home, they should consider downsizing to one car, or at least switching one to a much less expensive, more gas-friendly model, Ulrich suggests. "By bringing down their car payments, they can save over $200 a month and put that cash toward their cushion or paying off their debt." Breanne and Larry can also lower their utility bills (they spend $180 per month on electricity and gas) by being vigilant about turning off lights and computers when they're not using them. "They can log on to lowermybills.com to check for better deals on their Internet service, phone, and insurance," says Ulrich.

Next step: Start saving. Once Breanne and Larry make a dent in their debt, they can start stashing 10 percent of their take-home pay in a high-yield savings account (check bankrate.com to find one with a rate of 5 percent or higher); they should fund that account with direct deposit or automatic transfers from their checking accounts. "Setting aside money will be hard at first," Ulrich warns. "But with automated savings — which practically every bank offers — they won't even notice it," she says. "And they'll be pleasantly surprised by how much money they save in just one year." Breanne and Larry should also contribute at least 2 percent of their take-home pay toward a 401(k) retirement fund (log on to irs.gov/retirement to find out how to open an individual IRA if you're not employed or if your employer doesn't offer a retirement plan).

The couple should also look for ways to bring in more cash. "Larry should work as much overtime as he can since he gets time-and-a-half, and perhaps Breanne can babysit for friends once or twice a week," Ulrich suggests. "She could bring in an extra $100 or more a month." Breanne and Larry can get creative, too, and reap even more monthly earnings. "Breanne likes to jar her own salsa," Ulrich says. "If she prints some labels and sells the jars for $5, selling several jars a month will net them another $25 to $35 — a nice windfall for doing something she enjoys."

With all this strict economizing, however, Breanne and Larry risk losing motivation and possibly going back to their old spend-y ways. That's why they should pay themselves $50 each week in "fun money." "Total deprivation can result in a binge later," says Ulrich, "so it's important for them to feel like they get the chance to enjoy some of their hard-earned money."

FINANCIAL ROADBLOCK: "We feel pressure to keep up with our friends!"

MONEY-SMART SOLUTION: Wait to make major decisions until you're both financially — and emotionally — ready.

When faced with the ever-popular question of "When are you going to have kids?" Breanne gets frustrated. "Even though we both want kids, I wish people would leave it be," she says. "I feel rushed and sometimes guilty that we haven't gotten pregnant yet." Larry agrees. "Of course I want kids," he says, "but I just don't think we're ready." They're smart to know their limits, says Tessina. "It's important for them to get their emotional connection and financial situation secure before having children," she adds. "Parenting is stressful and demanding, and if they're not ready they will have a very rough time." Fact is, failing to prepare for all the consequences of big life changes — whether it's buying a house that needs a lot of renovations or having a baby — will always put you in the hole. "But if you plan for life's big moments," says Ulrich, "you'll never be surprised or weighed down by the price tag."

When family and friends pressure Breanne and Larry to start thinking about having a baby or wonder why they haven't started trying by now, the couple needs to maintain a united front about their relationship time line. Talking to each other openly about their future wants and hopes will help them eventually attain the life they desire, Tessina says. She suggests that they draw themselves a life map — with sections for home, kids, money, fun, and work. In each section, they should write down their dreams. "This will make their long-term plans more real to them," she says — and will help them figure out when they will be ready to become a threesome. "Things will come up that neither one of them could predict, but that's the part they're good at," Tessina says. "For example, they were able to make big decisions together when it came to buying and renovating their home. So long as they keep working to take charge of their future, they'll be taking steps to create the family they always dreamed of having."

BREANNE: "We now know how to reach our overall goal of having a baby instead of letting things 'just happen.' Tina helped us figure out a better way to talk to each other, and Carmen helped us financially prepare ourselves for the family we'd like to have. We made the life map Tina suggested. We still need to get more detailed on how to attack the goals we've listed, but just sitting down to discuss them was helpful. We've also started paying off the highest-interest credit card first. I've looked into some online savings accounts that offer a higher interest rate than our current accounts do. I also started doing more bill payments online, which I like because I no longer worry about my payments arriving late."

LARRY: "Carmen's and Tina's advice opened my eyes to our situation. We've really been going along just reacting to things that pop up instead of laying out a plan to get ahead. Tina helped us open up to each other about what we would like to see in our future. We've talked about how we want to reach our dreams and have set up doable time frames. I've started to get more involved in bill paying and I've rearranged my priorities a bit. I'm going to start my 401(k), too. It was good to talk to Breanne about what we want in the future, and we are getting along better now that we are talking about things more."

We aren't using our credit cards anymore, although we do use our debit card because it's easier than writing a check (but it doesn't really count since we can only spend what we have in our checking). Larry just got a promotion at work this week, so that was some exciting news and will help our budget to come. We are basically paying minimum payments on all our cards except one, which we are paying about $200 extra on, so we are starting to see a small dent in our debt, which is wonderful. We are also on budget billing for our electric and gas utilities and have agreed to conserve energy, so that's begun to lower our utility bills slightly. Also, before we stop at a gas station for a soda, we stop and think first. If we are headed home, we'll just wait and have a drink there now, which is saving a little money. Unfortunately we just can't downsize to one vehicle; we really do need a car for each of us. We are grouping our errands together still to save gas that way.

As for our relationship, we are sitting down and talking a lot more than we used to. We've even gone on a couple of dates, which don't have to cost a lot if you look around for cheap things to do. We are closer now, and have our goals in mind and our treasure map to keep us in check.

We really appreciate all the help and advice that was given to us and feel like we are right on track to start expanding our family soon, and we won't have the stress of extra debt hanging over our heads when we do.

Update from Larry:

Since we have talked to the experts I think things have been going better here. For starters I have been promoted at my job, which is very helpful for our finances. This new raise will certainly help to pay off some of the debt quicker. Unfortunately, the fact that we have two cars is basically a must for this area, because of our jobs and the schedules we work. With the pace we are at I still feel it will be at least a year before we are comfortable financially having a baby. I think Breanne and myself are more open to each other about our financial status and the goals that we have to prepare for a baby.